Inside SAC's shark tank

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The notorious Steve Cohen is on the rebound, but efforts to raise capital have been muted as investors remain spooked about what really goes on below the surface.

By Britt Erica Tunick

Illustration by Balint Zsako

Steve
Cohen became one of the world's top art collectors when, in
2007, he paid $8 million for a decaying shark submerged in a
tank of formaldehyde. Created by the notorious British artist
Damien Hirst, the shark's high price shocked the critics as a
symbol of how much the market had become captive to crass
materialism.

If anyone seemed the perfect buyer for such a piece, it was
surely Cohen—something of a notorious figure himself.
SAC Capital Advisors founder Cohen's take-no-prisoners trading
approach has long been controversial; he is said to routinely
control as much as 3% of trading on the New York Stock Exchange
and 1% of the Nasdaq Stock Market. Likewise, Cohen's relentless
drive for an information edge, his ruthlessness toward
employees, arrogance toward investors and outlandish lifestyle
in an industry where conspicuous consumption is a given have
turned the 53-year-old manager into the shark of the hedge fund
world.

The multimillion-dollar price tag on Hirst's real shark,
titled The Physical Impossibility of Death in the Mind of
Someone Living, made the artist an overnight celebrity in the
conceptual art world, while steady outsize returns gave
Cohen—who is commonly referred to as Stevie—a
personal fortune reported to be as high as $8 billion.

Then came the Crash.

By December, Hirst's art had lost a reported 50% of its
value, reigniting criticism that a dead fish floating in
chemical preservatives doesn't constitute art after all.
Hirst's sinking value would have little impact on Cohen's huge
art collection or overall wealth, but losses at his hedge fund
firm were another story entirely. When its flagship SAC Capital
lost roughly 28% in 2008, Cohen—whose initials gave
the firm its name—responded with mass firings and a
refocusing of his trading strategies, according to ex-employees
and investors. In 2009 the fund rebounded to show a 28.6%
gain.

SAC isn't swimming in the clear just yet. After a former
employee was charged in the recent hedge fund insider trading
scandal, Cohen was sued by his ex-wife, who claimed she knew of
illegal dealings by Cohen, and the Federal Bureau of
Investigation is reportedly investigating the firm. Neither
Cohen nor his firm have been charged with anything, and both
the FBI and the SEC declined to comment on whether they are
investigating the firm. Yet an aura of mystery surrounds the
elusive and secretive SAC.

Insiders have long said that SAC's penchant for privacy
stems from the fact that roughly 70% of the firm's capital,
which was $12 billion as of January 1, is Cohen's own. (In
keeping with his distaste for publicity, Cohen declined
repeated requests for interviews.)

But after being closed to new money for years, SAC has been
trying to woo new investors—with limited success. Even
though he has altered his terms to make them more palatable to
investors, Cohen has raised only $1.3 billion since he reopened
last June. In today's hedge fund market, where investors are
skittish about fees and lockups and paranoid about scandal, SAC
is a hard sell.

The enormity of the challenges facing SAC became apparent in
late January at Morgan Stanley's annual capital introduction
conference at The Breakers hotel in Palm Beach, Florida. The
typically reclusive Cohen was a featured speaker at the event,
during which attendees say he rebuilt his trading desk in his
hotel suite and locked himself away, trading for most of the
trip.

Cohen's speech highlighted SAC's ability to recruit
top-notch fund managers and its internal risk controls and
heightened compliance, according to one attendee, who quipped
that the pitch was almost a replica of Israel Englander's spiel
for Millennium Partners—but with higher fees. "SAC
today is a diversified, research-driven investment management
firm built around a core position in long/short equities, as
well as significant positions in quantitative and other
strategies," the firm's marketing documents state.

Although Cohen naturally generated buzz at The Breakers,
some investors remain wary. "There's zero chance in my mind
that SAC can go out and gather a significant amount of
institutional investor money," says the chief investment
officer for one prominent institution. "If you're a plan
sponsor, you're making zero dollars. So you say to yourself,
'I'm not making enough money to take this kind of career
risk.'?" SAC's exorbitant fees, the lack of clarity regarding
its investment practices and today's tough regulatory climate
make the firm an unattractive option for many.

Until recently, Cohen was able to laugh at such concerns. He
launched SAC with $25 million in capital in 1992—$20
million of which he and a few friends supplied—and the
firm's assets under management quickly soared. In addition to
outsize returns that annnualized 35% from inception through
2007, an investor base comprised primarily of wealthy
individuals, family offices and funds of funds poured in enough
money that SAC's assets reached a high of $16 billion by July
2008. Because of the firm's incredible returns after fees,
Cohen had little difficulty getting investors to accept a 3%
management fee and a 50% performance fee for the firm's SAC
Capital fund, along with a three-year lockup period. So popular
was SAC that Cohen closed his main fund to outside money by the
late 1990s. And despite the losses in 2008, its 10-year
performance was 25.15% through October 2009, earning SAC AR's
long-term performance award last fall.

One of eight children, Cohen grew up in a middle-class
family in Great Neck, N.Y.; his father worked as a dress
manufacturer, and his mother was a piano teacher. A knack for
poker, which became a passion by the time of his college days
at the University of Pennsylvania, provided a source of pocket
money and led to an interest in the markets. Before Cohen even
completed his bachelor's degree in economics, he was perfecting
his trading approach, using a brokerage account a friend had
helped him open at Gruntal & Co. to bet thousands of
dollars on the market.

Cohen's success led him to join Gruntal's options arbitrage
group in 1978, and after only six years he found himself
overseeing a group of traders and managing a roughly $75
million portfolio for the firm. But by 1992 Cohen's desire to
be his own boss won out, and he struck out to launch SAC.

In the early days, Cohen became known on the Street for his
rapid trading style and his ability to "read the
tape"—that is, analyze the trading pattern of an
individual stock to determine the direction it was most likely
to move in order to take short-term positions to benefit from
such movements. Using this method to trade in and out of
hundreds of stocks on any given day, he produced a track record
that almost immediately caught investors' interest.

By the late 1990s SAC's assets had grown to nearly $1
billion. But such changes as the introduction of decimalization
on the NYSE, along with a rise in the number of hedge fund
firms and others engaged in short-term trading, forced Cohen to
alter his strategy.

He began building an arsenal of analysts and traders, and
though short-term trading remained at the core of SAC's
portfolios and accounted for the bulk of its investments, the
firm gradually expanded its portfolios, even opening up a
multistrategy fund that became bogged down in illiquid
investments and has underperformed.

At the heart of the firm is an information network Cohen has
spent years and billions of dollars building up. SAC is one of
the Street's biggest spenders on trading commissions; its
annual tab is reported to regularly climb as high as $400
million, just one of multiple ways Cohen is said to garner
preferential treatment from the analyst and broker communities.
Cohen's aggressive practice of purchasing secondary shares of
stocks is another, as such trades often mean hefty commissions
for brokers. By spreading commissions across the industry,
Cohen has created an information network that all but
guarantees he and his traders receive the first news of
anything to do with the companies the firm follows—a
privilege former SAC analysts and traders confirm is critical
to the firm's success.

Such practices have aroused suspicion for years. "In a day
and age when you can do algorithmic trading with practically
zero commissions, the big question is, why would SAC insist on
paying three or five cents a share... they're lining the
pockets of everyone in the ecosystem," says one manager close
to the firm. SAC's spokesman says the firm pays less than a
penny a share.

Cohen has also demonstrated that to gain an edge there is
almost no degree he is unwilling to go to. He has even put
Central Intelligence Agency operatives on SAC's payroll in an
effort to help fund managers assess the validity of information
provided by the management of companies they trade—a
practice detailed in "Broker, Trader, Lawyer, Spy: The Secret
World of Corporate Espionage," by Eamon Javers.

The fine line between gathering information for such an edge
and getting nonpublic information illegally came to public
attention with last year's revelation of an alleged insider
trading ring that brought a quick end to Galleon Group. The
probe continues to ensnare an increasing number of hedge fund
professionals, including former SAC trader Richard Choo-Beng
Lee. A cooperating witness in the government's case against
Galleon, Lee pled guilty to insider trading charges related to
investment activities after he left SAC, and reportedly told
regulators he will provide any information he has on any
insider trading that may have occurred while he was at SAC.

Headlines about insider trading are not new for SAC. In
January 2009 the SEC filed a complaint against Ramesh
Chakrapani, a former Blackstone Group managing director said to
have given information about SuperValu's 2006 acquisition of
grocery chain Albertsons to his friend Jonathan Hollander, a
trader at SAC's CR Intrinsic Investors. Hollander is alleged to
have used the information to generate profits for himself and
friends as well as SAC's coffers. In the case of Hollander it
was SAC that turned the trader in after an internal
investigation uncovered his activities. "I think it was an
attempt by SAC to show that they have full compliance and that
they're fully legit," says one former employee.

Although there have been no charges against anyone at SAC,
the headline risk has made many investors jittery. "If I were
sitting on the sidelines and considering an allocation, I would
want to wait until the SEC has handed down their all-clear
notice on the firm," says one institutional investor familiar
with SAC. The nail-biting also exists among current SAC
investors, particularly in the funds-of-funds community. "The
funds of funds know that if anyone at SAC actually gets
charged, and anyone gets indicted, that the whole thing could
go down in about a week—just like Galleon," says one
fund manager close to the firm. "On the one hand, they want to
ride the gravy train and benefit from the tremendous track
record, but on the other, they acknowledge that there's too
much smoke for there not to eventually be some fire."

If the firm were to find itself embroiled in the insider
trading scandal, those close to Cohen believe he would emerge
unscathed. "Steve is smarter than Raj—he hardly talks
to the Street. He's got a few people he talks to, but he's
pretty well insulated, and he recognizes the evils of skating
too close to the edge," says a former SAC employee whose firm
closely follows Cohen's activities. "His compliance is among
the tightest on the Street, and when everything hit with
Galleon, his firm was one of the first that we got a call
from."

SAC has many supporters who are quick to back the firm in
its insistence that trading is aboveboard and its information
network is well behind the line separating high-quality
analytics and information from insider trading. "In terms of
things like insider trading, I think the government has been on
a very unfortunate witch hunt to try to criminalize his
activity that seems to be particularly Ahab-esque," says one
former SAC employee.

Other former SAC employees insist that the firm has been
unfairly portrayed as shady for no other reason than simple
jealousy of Cohen's success. They argue that if prosecutors
really had anything to pin him with they would have done so by
now. Yet even Cohen's staunchest backers admit that they can
understand some of the reasons Cohen and his firm are under
attack.

"He probably brought some of this on himself because he
wasn't that great to work for and wasn't a nice guy," says
another former SAC employee. "I found him to be unpleasant at
times and think he's very self-centered and has a great
deal of avarice—but he had a positive, dramatic effect
on my career, as he did on hundreds of others."

Those mixed emotions are common. From individuals who left
the firm to launch hedge funds of their own to fund managers
fired the second their portfolios turned south, Cohen's former
employees paint a picture of him as a duplicitous individual.
They describe a person so driven to succeed his behavior during
trading hours is often cold and bitter toward those who work
for him. But the second the final bell rings, they say, Cohen's
demeanor changes, and he becomes a down-to-earth individual who
is able to laugh with his employees.

"Steve can be charming, and he can be ruthless," says one
former employee. "If you do well, he's perfectly nice, and if
you do poorly, he's got very little patience."

No matter where they weigh in on their opinions of Cohen,
one thing that seems unanimous among those who have worked for
him is respect for his trading abilities and the 100-plus hour
work weeks he regularly logs. "He's one of the most talented
traders who has ever lived," says a former SAC fund
manager.

While equity trading may be Cohen's forte, his firm has
gotten so big that it has ventured elsewhere. Of the firm's
four main funds—SAC Capital Management, its onshore
flagship fund; SAC Capital International; SAC Global
Diversified, and SAC Multi-Strategy—it's the first two
the firm most emphasizes. As of December 31, SAC Capital
Management, which launched in 1992, had generated average
annual net returns of 30% with a net Sharpe ratio of 2.6.
Comparatively, the offshore SAC Capital International, which
launched in 1996, has returned average annual net returns of
28% with a net Sharpe ratio of 2.5. According to SAC's
marketing documents, the firm boasts 102 portfolio
teams—78 dedicated to trading discretionary long/short
equity, 17 to quantitative strategies and 7 to global macro and
opportunistic strategies. Of the firm's total capital, roughly
85% was devoted to long/short equity as of September 30.

SAC's expansion has met with mixed success. In the mid-1990s
Cohen introduced a quantitative model into the firm's trading,
gradually expanding the firm's focus to include other
strategies such as multistrategy, bonds, macro, fixed income
and even private equity investments, along with sector-specific
trading in areas such as health care. But in 2008 losses in the
multistrategy fund led SAC to offer investors the option of
moving money into SAC Capital International, and some $700
million was transferred. Now Global Diversified and
Multi-Strategy have only $3 billion between them. Last year,
returns from the multistrategy fund lagged, rising only
18%.

Perhaps the most successful diversification has been the
push into quants. In 2003 Cohen brought on Neil Chriss, founder
of derivatives trading firm ICor Brokerage and director of the
New York University Courant Institute of Mathematical Sciences'
program in mathematics in finance, to lead the effort. Using
quant models predominantly limited to multifactor models
trading off fundamental data, Chriss was able to generate hefty
returns for SAC and is said by former employees to have
approached Cohen seeking some sort of partnership in the firm.
After his request was shot down, in early 2007 Chriss left SAC
to launch his own firm, Hutchin Hill Capital.

"There was a point where, I believe, the quant group was
probably running half of SAC's capital," says a former SAC
employee close to the group. "But in the great quant slaughter
of '07, like everyone else, they got absolutely decimated, and
SAC yanked their capital base."

Between 2004 and 2008 Cohen made a major expansion push,
bolstering SAC's senior-level staff along with its offerings.
Cohen also broadened the firm's geographical reach, adding a
U.K. presence by acquiring Walter Capital Management of London,
which was rebranded as SAC Global Investors. At one point, the
firm is said to have had nine individual hedge funds. "The way
SAC was structured, if you looked at the prospectus, it was
frightening how many LLCs they had... [Cohen] had Sigma and all
sorts of funds where the vast majority of them were not
available and were just funds where other funds would invest,"
says the head of one fund of funds invested with SAC during
that period. This person says that the firm's labyrinthine
structure was created by Cohen to keep his trading activities
hidden from the Street.

"My biggest complaint with SAC was that Cohen had too many
chiefs. Things became way too bureaucratic," adds another head
of one fund of funds.

In January 2005 Cohen established CR Intrinsic Investors, a
subsidiary of the firm based on fundamental analysis set up to
pursue longer-term positions than those taken with SAC's
traditional trading strategy. Matt Grossman, SAC's chief of
research until that point, headed up CR Intrinsic. Former
employees say the post was a reward for Grossman's creation of
SAC's so-called shadow system, which funnels fund managers'
best trading ideas directly to Cohen. Grossman left SAC in late
2007.

Initially, Intrinsic traded mostly Cohen's own money,
according to a former employee. But the unit gradually took in
outside capital, building its assets under management to
roughly $2 billion by the beginning of 2008. Staffed by a group
of traders one former employee describes as "insanely arrogant"
even by SAC standards, Intrinsic's trading team was the group
responsible for SAC's losses in the Porsche/Volkswagen trade in
the fall of 2008. SAC and some of the industry's largest hedge
fund firms lost billions of dollars on the trades.

Those losses combined with the overall impact of the market
crash left SAC's flagship fund down 27.56% in 2008. It was the
firm's first down year—and a dramatic departure from
the 20% to 30% annual returns investors had come to expect.
Cohen responded by moving nearly 50% of the firm's capital into
cash and making significant personnel cuts. Intrinsic's seven
portfolio managers and analysts were let go. Although the unit
was restaffed, the jobs of roughly 30 back-office employees
were eliminated, and SAC pulled the plug on its San Francisco
office.

"One day he just got up on his desk and said, 'You're all
fired,' and all the fundamental portfolio managers got canned,"
says a former SAC employee who was there at that time. An SAC
spokesperson denies the firings, saying, "This is a myth and
not true at all." SAC also eviscerated the firm's credit
effort, an area Cohen had aggressively expanded in 2006 and
2007.

Cohen made some significant changes throughout 2009. Like
many of his competitors, he realized the need to be more
amenable to investors. Though SAC has yet to budge on its fees,
Cohen is said to be considering a lower fee class. In June he
replaced the three-year lockup period on the firm's SAC Capital
International fund with quarterly redemptions and a 25%
individual investor-level gate. SAC has also become a bit more
transparent about its trading activities, organizing frequent
investor calls and providing quarterly reports. At the end of
2009 the firm brought on Citco Fund Services as its independent
administrator, another bow to investor pressure.

These days, SAC is making another big push in quant trading.
In the summer of 2009, Cohen brought on Ross Garon, previously
a partner at defunct Tykhe Capital who had been at D.E. Shaw,
to build up that business. The firm has searches under way for
quant traders, commodities trading advisors—a fairly
new area for SAC—and a handful of senior management
positions. "High-frequency trading is now the rage, and SAC
recently held a job fair where they invited quants using
high-frequency models to strut their stuff," says one former
employee. "When SAC was down, the stat arb guys were up 50%,
and that's when Cohen decided it's worth straddling the two
extremes," he says.

"I think Steve would agree 100% that he strayed too far off
the reservation and put up the only negative year of his entire
career as a result," says one SAC alum. "He's since simplified
and now has no interest in anything involving complex leverage,
derivatives or liquidity constraints." In 2009 SAC Capital
Management was up 28.6% for the year, while SAC Capital
International logged gains of 28.4%.

Many of the individuals who have made their way through the
20,000-square-foot trading floor of SAC's Stamford, Conn.,
headquarters describe a testosterone-charged environment with
Cohen literally at the center. His trading-floor desk is
the middle point, with video feeds that relay the guru at his
workstation across the room to ensure that no one misses any
comments or trading wisdom he might impart throughout the day.
The firm's CR Intrinsic group sits at the end of the trading
floor, partitioned off by a large glass wall.

It's eerily quiet, the former employees say. Cohen does not
like the noise made when the tiny fans inside computers
occasionally kick in. Office phones are set to blink instead of
ring. "There's a group of security people constantly looking at
video cameras to make sure nothing is going on," says a former
SAC employee. And since no one in the building has ever been
able to get a cell phone signal, traders believe Cohen has
intentionally blocked signals throughout the firm's
headquarters.

Even Cohen's preference for a 70-degree work
environment—which he is said to believe is the optimal
temperature to elicit the best performance from his
traders—has become a key part of the firm's culture.
To keep employees warm, Cohen has long issued black fleece
jackets embroidered with SAC's logo. These jackets have come to
symbolize the firm's exclusivity. "It's my good luck charm,"
says a former SAC employee of his fleece. Though he's packed
away his SAC jacket since leaving the firm for fear of
appearing arrogant, he says he now wears a solid black version
of the exact Patagonia Synchilla style worn at SAC.

SAC has a clannish atmosphere, and employees must promise to
keep its inner workings secret. Those joining and leaving the
firm must sign extensive legal documents that have helped the
firm keep the intricacies of its trading strategies well
shrouded.

"You get these huge exit agreements that say if you're ever
contacted by the press, you have to call them immediately,"
says a former SAC employee who, like nearly all his peers,
would speak only on the promise of anonymity. Even so, he
remained extremely worried about what would happen to his
career if Cohen ever discovered he had spoken about
SAC—a sentiment repeated time and again by the more
than two dozen people who spoke to AR for this story.

"SAC is an extremely private manager, and they want to stay
out of the media at all costs. And there's very little upside
for someone like me to talk about them," says one former fund
manager. Cohen's clout is another reason: "Steve has the
ability to outsource capital to people. There are just so many
people who have been through there and have connections that,
really, everybody has something to lose." The extent of Cohen's
penchant for secrecy was demonstrated in early January, when
SAC was able to convince editors at Thomson Reuters to kill a
story on the Wall Street legend.

Cohen's hold on his former employees doesn't stop with the
firm's quasi gag orders. Portfolio managers who join SAC are
required to sign contracts agreeing that if they leave the firm
to launch hedge funds of their own, Cohen is entitled to 50% of
any fees they generate for up to 10 years and has the option to
finance such funds up to 40% of their capacity. "The two other
conditions of employment are that you don't put Steve Cohen at
risk and you don't make him look bad," says one former SAC
employee.

Fund managers and traders at the firm are split into groups
that operate much like mini hedge funds yet whose trading
collectively feeds into SAC's four primary funds to varying
degrees. Traders say the atmosphere at SAC has become somewhat
less clubby in recent years as the firm's head count has
climbed to nearly 800, including more than 100 analysts.
Cohen's "eat what you kill" approach to compensation keeps
interaction between different groups at a minimum, with traders
closely guarding their strategies from one another.

Under what is often referred to as SAC's shadow system,
Cohen continuously monitors the trades of his fund managers,
and when he spots a position he believes is likely to pay off
will usually shadow it by adding the same position to his own
portfolio. "He's basically taking the best idea of each trader
and instead of giving them more capital or leverage is just
putting it in his management book," says one fund manager close
to SAC. He says that the practice sometimes creates resentment
among some of SAC's portfolio managers, who view it as a way
for Cohen to keep from paying them as much as they are worth.
Though fund managers may not reap the same financial rewards
for sharing their ideas that they would if SAC simply let them
increase the positions in their own portfolios, traders whose
ideas are used by Cohen are compensated based on the amount he
makes from implementing their trades, which is said to vary
based on individual traders' employment agreements with the
firm. SAC's spokesman said the shadow trading notion is
"completely false."

The average SAC portfolio manager is allowed to manage
between $300 million and $500 million. If their peak-to-trough
loss reaches 5% of their funding, the firm usually halves their
capital, whereas losses as high as 10% will most often mean
termination. Still, not all portfolio managers are treated
equally. Beyond the $4 billion traded by Cohen himself, six
managers oversee portfolios in the $750 million to $1.3 billion
range; 14 managers trade between $500 million and $700 million;
20 managers fall in the $300 million to $450 million range; 18
managers control between $200 million and $250 million, and 19
managers oversee portfolios of $150 million or less.

A combination of the firm's onerous employment terms,
extreme competition and Cohen's penchant for firing people the
second their trading performance hits a bump in the road has
led to high turnover during SAC's 18 years of operation.
Because the firm is able to pay more than most of its
competitors, it has little difficulty attracting traders and
fund managers. But SAC alums say the way employees are treated
and compensated makes cashing in on the brand by going it alone
an attractive option for fund managers who have put in a few
years.

"If you come in as a portfolio manager and you go in-house
and negotiate a deal, you'll get 20% of the P&L that you
generate. But at the end of the year you get nickeled-and-dimed
on getting allocations from the trading desk and everything
else, and the net you get is more like 14%. So you start
thinking you can do better on your own," says one former SAC
trader. He says SAC's practice of deferring compensation as a
way of retaining talent breeds resentment, as does the fact
that Cohen almost never lets fund managers advertise their SAC
records when they go out on their own.

"It's pretty much unheard of to take your track record. Just
that you've worked in the 'hallowed halls of SAC' is more than
enough to get hired elsewhere," says the trader. Another former
SAC employee notes that Cohen doesn't really believe any of his
employees' performance stats are actually their own since he
ultimately has the ability, which he frequently exercises, to
rein in positions he views as potentially troublesome and
therefore curb any potential losses. But with so much
controversy surrounding Cohen and his firm these days, some
former employees are worried SAC's cachet could have an
expiration date. "I have a fear that there will come a point
where SAC could become a blot on your
résumé—kind of like a Galleon," says a
former trader. With that possibility in mind, he says he is
aggressively interviewing now.

Despite Cohen's success in quickly building SAC into a
powerhouse business, his intense secretiveness kept him out of
the media spotlight for years. But the soap-operatic antics of
his personal life, a number of lawsuits and the new scrutiny of
hedge funds have turned up the wattage.

In November 2006 Andrew Tong, a junior trader at SAC at the
time, filed a sexual harassment suit against SAC and his boss,
Ping Jiang, in New York State Supreme Court. Tong's suit
recounted a fraternity-like atmosphere he claimed was part of
SAC's training program for traders, where he alleges that his
boss tied him up, urinated on him and forced him to take
estrogen pills, dress in women's clothing and perform oral
sodomy. Though the outlandish charges were widely recounted
throughout the Street, the court documents were sealed. Tong
eventually withdrew his suit, but not before his claims
prompted the involvement of the Equal Employment Opportunity
Commission—which launched an investigation into the
matter that was closed without action in the spring of
2008—and an FBI investigation, according to press
reports. In late 2009 court documents from the case were
unsealed, reigniting media coverage.

Cohen's name went mainstream, however, in 2006 when 60
Minutes showed a grainy photograph with Cohen's head circled in
an episode reporting on a suit filed by Biovail against SAC and
others. The suit was dismissed last summer, and SAC in late
February 2010 countersued for vexatious litigation.

But according to Cohen's ex-wife, Patricia, the TV show got
her thinking. In December, she levied charges of her own
against her former husband, his firm and his brother Donald.
The former Mrs. Cohen's suit, which sought $300 million in
damages, alleged that her ex-husband hid assets during their
divorce and gave false affidavits between 1988 and 1991.
Perhaps most damning, however, were her claims that she was
aware of insider trading activities Cohen was involved with
during their marriage, including deals such as General
Electric's takeover of RCA in 1986, and that he was involved in
ongoing racketeering activities, including mail and wire
fraud.

The timing of Patricia's case against her ex-husband aroused
suspicion as it was filed a matter of weeks after the former
SAC employee got caught up in the Galleon trading ring. The
suit was withdrawn when Patricia changed lawyers. Her new
attorney, Gaytri Kachroo, who rose to prominence for her legal
representation of Madoff whistle blower Harry Markopolos, says
the case will be refiled within the next couple of weeks.

Kachroo says that the reasoning for her client's choice of
the racketeering statute to pursue her ex-husband will become
clear when the new complaint is filed. "We're not giving up on
the RICO. It makes sense based on what's occurred," she says.
SAC's spokesman denounced the suit's claims as "ludicrous
allegations made by a former spouse that are entirely without
merit."

And it looks like SAC's attorneys will have no shortage of
work in the coming days. According to a source close to hedge
fund firm QuantZ Capital Management, after the firm hired
Prasad Chalasani, a former robotics professor who had been laid
off from Millennium spinoff WorldQuant, he bypassed the initial
getting to know your workplace approach most people take on
their first day and immediately began probing the inner
workings of QuantZ's proprietary quant programs. Chalasani's
digging aroused suspicion among his new employers, who began
making calls and discovered that their new employee had
"shopped his offer letter to SAC" to land himself a job with
Cohen—which was all but confirmed when he failed to
return after his first day with QuantZ.

Though SAC initially refused to acknowledge his employment,
a call to the firm put us straight through to Chalasani, who
declined to comment. QuantZ is understood to be considering its
legal options against both Chalasani and SAC, and the firm's
counsel has already sent legal notice to Chalasani. A spokesman
for QuantZ declined to comment on the matter.

For all the legal issues surrounding the firm, many point to
the fact that Cohen in 2001 brought on Peter Nussbaum, a former
partner with Schulte Roth & Zabel, as SAC's general
counsel. One former senior-level SAC employee describes
Nussbaum as a "cross the t's and dot the i's" kind of attorney
who is extremely cautious in his interpretation of the law and
has applied his conservative approach to SAC's oversight. SAC
alums say the firm is constantly reminding traders of the
importance of operating within regulatory
guidelines—an idea driven home in multiple annual
compliance sessions employees must attend.

Much to his dismay, scrutiny of Cohen's astronomical wealth
extends beyond his methods for earning it to the ways he spends
it. In 2009 he ranked 36th on Forbes' annual list of the 400
Richest Americans, with an estimated net worth of $6.4 billion.
An active philanthropist, Cohen is a member of the boards of
trustees of Paul Tudor Jones' Robin Hood Foundation and Brown
University. But it is his mammoth home in Greenwich, Conn., and
his art collection that attract the most attention.

In 1992, the same year he launched SAC, Cohen married his
second wife, Alexandra, or Alex, whom he met through a dating
service. The couple have four children together, not including
their children from previous marriages. Shortly after they wed,
Cohen and his new bride took the unusual step of appearing on
the English-language spin-off of a Spanish talk show called
Cristina in an episode entitled "He Acts Like Her Husband,
Too." During the program, Cohen admitted to sleeping with his
ex-wife, Patricia, after he was already in a relationship with
Alex—footage of which was recently unearthed by the
media after the filing of Patricia's lawsuit.

It is not the only time the couple has made headlines. The
multiple renovations to the extravagant home on 14 acres of
land they bought in 1998 have served as consistent tabloid
fodder over the years. Features of the walled-in compound
include an ice-skating rink, an indoor pool, a movie theater
and a two-hole golf course. "When he first bought the house,
Steve used to joke that the neighbors were going to say, 'Here
come the Clampetts,'?" says a former senior-level SAC employee
close to Cohen.

Then there's their art. Though the Cohens began collecting
art only in 2000, they have built up one of the world's largest
and most notable private collections, which is closing in on $1
billion in value. Cohen is even reported to be adding a private
museum on his estate. In addition to pieces by Hirst, his
collection includes works by Van Gogh, Gauguin, Andy Warhol,
Roy Lichtenstein, Monet, Degas and Keith Haring.

"He's a highly respected investor and art collector. He's
bought some spectacular things, in part because he has a
spectacular amount of money," says Donald Thompson, a marketing
professor at Toronto's Schulich School of Business and author
of "The $12 Million Stuffed Shark: The Curious Economics of
Contemporary Art"—whose title is a nod to the sum
Cohen was initially reported to have paid for the Hirst
work.

Cohen has found a way to meld his two passions by diving
into the financial side of the art world. As of March 2009, SAC
had accumulated a 5.9% stake in Sotheby's, making the firm one
of the auction house's largest shareholders. But he's on the
hook to Sothebys in another way. "Mr. Cohen is one of about
five people who have been identified by Sotheby's over the
years as someone who has been buying guarantees," says
Thompson. Sotheby's guarantees artists a minimum for their
work, but financiers like Cohen are paid to assume that risk.
The collapse of the art market could have triggered losses for
these financiers to cover. Thompson says these guarantees
remain one of the art world's most closely guarded secrets.

Cohen's immersion in the art market is of little surprise,
given the money to be made and Cohen's passion for making it.
At times, however, that passion may take over. One former SAC
employee recounts the birth of Cohen's youngest child in 2002.
"The birth date was planned for July 3 because it was a slow
trading day. So Alex went in to have labor induced, and I think
the thing was scheduled at two o'clock—the whole idea
being that he was going to be there to witness the birth of his
child," he recalls. "But we're sitting there trying to get him
to stop trading, and he won't. He missed the whole thing."
SAC's spokesman says the birth date was chosen because the
doctor was going on vacation, that the doctor told Cohen to go
to work and that he left for the hospital as soon as soon as
the doctor told him to do so.

Those close to Cohen believe that he has been misunderstood
and just happens to have a love of and a talent for trading
that has made him an insanely wealthy individual. "I pray that
he dies at his trading desk because that is the greatest
blessing that he could ever have. This is a person that has
lived and breathed trading and has been passionate about it,"
says one former SAC employee. Adds another: "Cohen will only
leave SAC in a box." If he's right, for Cohen's sake, let's
just hope it's not one encased in glass and filled with
formaldehyde. AR